Endeavour Mining plc

Hello everyone and welcome to Endeavor's quarter to two and half year results webcast. Before we start, please note our usual disclaimer. On the call today, I'm joined by Ian Cockrell, our CEO, Guy Young, our CFO, and Mark Morecambe, our COO. Today's call will follow our usual format. Ian will first go through the highlights of our results. Guy will present the financials and Mark will walk you through our operating results by before handing back to Ian for his closing remarks. We will then open the line up for questions. With that, I will now hand over to Ian.

Thank you, Jack, and hello to everyone joining us on the call today. I'm pleased to report that during my first half year as Chief Executive Officer, we are continuing to deliver against our strategic objectives. On the operational side, we remain on track to achieve our production guidance for the 12th consecutive year, with all in sustaining costs expected to be near the top end of the range. This is due to the lower than expected power availability in Côte d'Ivoire and Burkina Faso, which resulting in the need for more costly self-generation, power generation. Higher gold prices driving increased royalty costs, and the higher costs at Sabadala and Asawa and Mana. However, we anticipate a reversal of the power issue in the second half, and we're already seeing that, and we remain focused on bringing down the costs that we can control. We were pleased to see our net debt and our leverage stabilize as our growth projects approach completion, and during the quarter, we started paying down our gross debt as well. We expect our net debt position and our leverage to improve over the coming quarters. With the increased visibility to lower leverage and higher free cash flow generation, we're pleased to announce a new shareholder returns policy. And that policy is that we are pledging to return at least $435 million in dividends to shareholders in 2024 and 2025, which we expect to supplement with additional dividends and opportunistic buybacks. For 2024, we'll pay a minimum of $210 million, which, just to put it in context, is a 20% increase on our minimum dividend we declared for last year. We were pleased to declare our $100 million dividend for H1 2024, whilst we also completed $20 million of share buybacks during the period, bringing our total return to $120 million, or $255 for each ounce that we produced. I'm also pleased with the progress we've made during the quarter at both of our projects, delivering first gold at the Sabadala Masala biox expansion in April, and then first gold at the Lasigue mine in June, both on budget and on schedule in less than two years, which is a tremendous achievement. We've now shifted our focus towards ramping up these two high-quality projects that will continue to improve the geographic diversification and the quality of our portfolio, whilst underpinning a stronger H2 performance this year. We remain focused on growing the business organically, and we are continuing to bolster a longer-term organic pipeline through our exploration program. This has made good progress during the quarter by advancing resource-to-reserve conversion at our key mines and projects, which is a key priority for us this year. You've probably also noticed our key strategic investment in a junior Cote d'Ivoire explorer called Kulu Gold. We've also returned strong results of the Asafu deposit, the Tanda Iguala, and several satellite deposits on the Tanda Iguala property, and we will provide an update on our positive progress that we've achieved later this year on this specific project. Finally, we're continuing to progress our ESG strategy as we focus on those initiatives that protect our people and the places where we operate, whilst also supporting the long-term success of our business. But before I walk through the quarterly details, I want you to thank our outgoing Chief Operating Officer, Mark Morecambe, and our EVP Exploration, John O'Laurence, for their years of dedicated service and their significant contributions during that time. They've both decided to leave to pursue other opportunities, and we wish them well in their new ventures. Whilst they will be missed as individuals, they leave behind capable teams who will continue the good work both of them brought to their roles. As we transition into a new phase focused on maximizing the performance of our existing operations to support our ambitious capital allocation priorities, I've taken this opportunity to restructure and reorganize the leadership to strengthen the operational and technical management within the team and to ensure that we can effectively deliver against our strategic objectives. I'm pleased to welcome Jaria Traore, into her new role as EVP Operations and ESG, and Martin White into his new role as EVP and Chief Technical Officer. Both Jaria and Martin have an excellent track record at creating value within Endeavor, and I have no doubt that this will continue in their new roles. Over the next slides, I'll touch upon our progress this quarter before handing over to the rest of the team for a more detailed update. So looking at slide seven, turning to slide seven, you can see our quarterly production and all-in sustaining margin trend. Production increased quarter on quarter to 251,000 ounces in Q2, due to increased production at Iti, Hyundai, as well as Sabadana Masala. While our all-in sustaining margin also increased, largely due to the improved gold price environment. This was partially offset by the increase in costs associated with lower grid power availability in Côte d'Ivoire and Burkina Faso, and the higher royalty rates due to the high gold prices, which Guy will touch on in more detail, as well as the high costs associated with Sabadala and the Mano mines. On slide 8, you can see how our operating performance is tracking. On the safety side, industry-leading lost time injury frequency rate remains stable, but there's always room to improve as we work towards zero harm across all our operations. But in fairness, we are pleased with the level of safety performance that we have in the group. Our production remains on track to achieve the guided range, whilst our all-in sustaining cost is expected to be towards the top end of that range. As I mentioned, our all-in sustaining costs this year have been impacted by the high gold prices driving higher royalty costs, the cost impact of lower grid availability, low grid power availability, and increased self-generated power in H1, as well as lower production and higher costs at server dialer. As we said in January this year, our production performance is weighted strongly towards the second half of the year, with increased production expected from Hyundai, as well as additional production being introduced from the two projects, as they ramp up to nameplate capacity in Q3. On the cost side, we've also started to see significant improvement in power grid availability in Burkina Faso and Cote d'Ivoire, which will support improved costs in the second half. We're also looking at several measures to improve the performance at Sawadala Masawa. On slide nine, operating cash flow increased by $203 million in the quarter. That was due to higher production, higher gold prices, a working capital inflow due to an increase in payables as the projects advanced towards completion, and due to the inflow of $150 million gold prepayment that was previously disclosed. On slide 10, you can see that despite our continued investment in organic growth and exploration during the quarter, our leverage and our net debt remain stable and healthy. We also reduced our gross debt by paying down $70 million on our RCF. As our two growth projects ramp up in the second half of the year, we will increase our focus on balance sheet improvement, bringing our leverage lower. That will further strengthen our financial position so that we can increase our focus on shareholder returns, while remaining well positioned to launch into our next phase of growth, most likely with ASIFU from 2026. Slide 11 shows us the shareholder returns are one of our capital allocation priorities. and we're delighted to outline our new shareholder returns program. We are going to return at least $435 million in dividends to shareholders over the 2024 and 2025 period, assuming the gold price remains above $1,850 an ounce and our leverage remains healthy. For 2024, we'll pay a minimum dividend of $210 million, being an increase of 20%, on last year's minimum dividend. And we also expect to supplement that minimum with additional dividends and opportunistic share buybacks in the higher gold price environment. During our last program, we returned 78% above the minimum commitment during a capital intensive phase of growth. So we expect to mirror that level of commitment with our updated program. On slide 12, you can see that by the end of 2025, we will have returned at least $1.35 billion to shareholders. That's approximately a quarter of our market cap returned over a five-year period. We don't intend to stop there as we believe this business is well positioned to sustain attractive shareholder returns through the cycle as well as beyond 2026. For H1 this year, we're pleased to declare a $100 million dividend, which we supplemented with $20 million of share buybacks during the period. That's a return of $255 for every ounce produced in H1, and it's equivalent to an attractive indicative annualized yield of over 4.3%, which reiterates our commitment to supplemental returns and opportunistic buybacks. Following our H1 dividend, we will have returned over a billion dollars to shareholders since we first started the scheme in Q1 2021. Again, equivalent to $223 returned to shareholders for every ounce produced over that period. And that's only been possible because of the high margins that we generate and the healthy balance sheet position we've been able to maintain. Moving on to our organic growth projects, on slide 14, we delivered first gold at Sabadala Masala BIOX expansion in early May after advancing the project from construction launch to first gold in under two years. We delivered the project on budget and on schedule with over 3.5 million man hours worked without sustaining any lost time injury. We're now shifting our focus to the ramp-up. And while we're on track to reach nameplate capacity from the biox plant of 1.2 million ton per annum, in Q3, we're also working on optimizing the existing CIL plant and the new biox plant in order to improve both the production and cost outlook. Mark will take you through some of those initiatives in his section. Moving to our next growth project, Lafigue, We delivered first gold in late June, a full quarter ahead of schedule, and only 21 months after construction launch. And the project was also delivered on budget and within schedule. We're ramping up the FIGE, and we expect to reach nameplate capacity in Q3. In July, we were processing at close to 90% nameplate capacity, and the mine is on track to achieve its guidance within the year. Not only do we do that not just once, but we were able to do it fairly consistently. On slide 15, we can see that as the projects approach completion, I wanted to highlight our industry-leading construction track record. We've now built five projects in the last 10 years in West Africa. All of these projects have been delivered on budget, on schedule, and we've built them in less than two years. What's even more impressive is because as these mines become established and ramped up, we've been able to significantly outperform main plate capacity due to operational efficiencies and low-cost optimization initiatives. On expiration during quarter two, we continue to prioritize resource to reserve conversion, as well as the high-priority Asafoet project and the target surrounding it. We will show a significant reserve increase in our year-end update, given the success we've seen at Iti as well as at Asafu, where work is underway to convert the sizable, measured and indicated resource into reserve with a very high conversion factor. We've also increased our exploration guidance at Sabadala Masawa to support the near-term non-refractory ore mine plan, which will provide higher-grade ore for the CIL plant. And we're advancing two deposits Chiesta Sea and the Akafiri West that are shallow, high-grade, non-refractory oxide opportunities that could support the 2024 mine plan and improve production at the CIL plant in H2. Due to the exploration success at Hyundai and at ITI in particular, as we get greater confidence in a larger, more cohesive ore body, This year, as well as the focus on accelerating the development of these deposits at Sabadala, Massawa, we've increased our exploration budget from $65 million to $77 million. At Tandiri Gwela, or as we will now refer to it as Asafru, on slide 17, we've already defined a 4.5 million ounce resource at 2 grams a ton. We're continuing to see positive results at the deposit, And so far, we have identified continuations of the mineralization at depth below the current pit shell and in shallow areas in the southwest of the deposit. So Asafo continues to grow, and we're going to provide an update later this year. And it certainly is showing signs of really confirming the success that we originally saw. And as we look at some of our regional targets, in close proximity to Asafo. At the parlor trend number three target, which is less than one kilometer southwest of Asafo, we've now defined shallow mineralization over a 900-meter strike length, and we've discovered a new target about five kilometers northwest of Asafo called Kume-Nangare, with preliminary results highlighting mineralization that is hosted within Burimian rock. We're going to continue to advance exploration at both the SAFU and the regional targets this year as we work towards completing the SAFU PFS by year end. We then reevaluate the scope of this complex ahead of commencing on the DFS. Before I hand over to Guy, I wanted to briefly touch on ESG. As we continue to progress our ESG strategy, we were delighted to receive an improved Sustainalytics score that ranks Endeavour as the highest gold producer in the sector. One area we have expanded on this year is our reforestation efforts. These include a 40-hectare project at La Figue with the YES Foundation, funding for a new arbitorium at the University of Daloa, and planting over 3,200 trees through our One Worker, One Tree initiative. And I'm pleased to see the range of initiatives we have in place to work towards our biodiversity targets and continued support of our local ecosystems. And with that introduction, let me hand you over to Guy, who can take you through the financials. Guy, over to you.

Thanks, Ian. And hello, everyone. I'll just take you through the Q2 financial highlights. To summarize our financial highlights for the quarter, our production from continuing operations, was up 15% over the first quarter, and our all-in sustaining cost was up 9%. The stronger production, along with higher realized gold price, drove significantly higher EBITDA, and also supported higher operating cash flows, in addition to a working capital inflow, and the proceeds of the $150 million prepayment that we previously disclosed. Our net earnings and adjusted net earnings were lower, largely due to higher tax expenses. I'll now walk through the details, starting with our production and all-in sustaining costs. Our production increased by 32,000 ounces to 251,000 ounces for the quarter due to stronger production at Hyundai, Iti, and Sabadola Masawa, while our all-in sustaining costs also increased $101 per ounce during the quarter due to higher than anticipated power costs, as well as increased royalty rates due to the higher gold price and higher cost Sabadola Masawa and Manor. Looking at our ASIC in a bit more detail on slide 22, our higher operating costs were largely offset by increased volumes of gold sold and lower sustaining capital. The significant contributors to the all-in sustaining cost increase were the higher power costs and royalties. Power costs increased by $52 per ounce due to the lower grid availability during the quarter, resulting in us having to self-generate more power and at a higher cost. In addition, we incurred higher royalty costs of $27 per ounce given the higher gold prices. Together, these resulted in the $79 per ounce impact on our all-in sustaining cost quarter over quarter and approximately $100 per ounce impact on the half-year. Given the impact of the lower availability of grid power, I wanted to spend some time going through the detail of slide 23. As you can see in the top half of this slide, our average grade availability at ITTI was 69% last year. And in the bottom half of the slide, at Hyundai and MANA, it was 91%. We prioritize using power from the grid, firstly, because it's much lower cost than self-generated power. So, for example, at ITTI, grid power currently costs around 18 cents per kilowatt hour, approximately 60% of the cost of self-generated power. In Burkina Faso, grid power currently costs around 23 cents per kilowatt hour, which is less than 50% of the cost of self-generated power. The other reason that we use grid power is because the grid has a 23% renewable contribution in Cote d'Ivoire and 13% in Burkina Faso, which clearly supports our low emissions intensity. The reason for the lower grid availability is down to the fact that in April, the Azita and Cipro natural gas power plants in Côte d'Ivoire had two simultaneous breakdowns, removing approximately 650 megawatts from the grid, which was already strained, having lost 250 megawatts of capacity in January. As a result, grid availability fell to a low of 6% in May. Burkina Faso imports about a quarter of its power from Côte d'Ivoire and was therefore also impacted. with grid availability falling to 16% in April. As a result, we had to self-generate our full capacity at Iti, Hyundai, and Manor, albeit at a significantly higher cost. The Cipro power station has now been restored, and the Azito power station has been partially restored, while renewable projects have also been accelerated. What this means is the power availability in July has significantly improved to around 62% at ETI and 72% at Hyundai and MANA, which should support improved costs in the second half. If we turn now to earnings, on slide 24, our adjusted EBITDA increased during the second quarter to $249 million, while our EBITDA margin remained stable at 45%. Higher production at higher gold prices supported the higher EBITDA, which was partially offset by higher costs. On slide 25 and our operating cash flow, this increased significantly to $258 million during the quarter, driven by the higher production and sales at higher prices, as well as a working capital inflow and $150 million prepayment that we announced in our Q1 results. Here you can see a bridge of our quarter-over-quarter variances in operating cash flow, And you'll note that the realized gold price and increased gold sales drove an $87 million increase, while operating expenses and income taxes were $160 million higher due to higher mining and processing costs and the timing of payments for the 2023 tax year in Senegal and Cote d'Ivoire. The change in working capital increased by $127 million, driven by improved trade in other receivables and an increase in trade in other payables. Operating cash flow also benefited from the $150 million in proceeds from the previously disclosed gold prepayments, and that will support the company's offshore cash position during the end of its investment phase for a relatively low cost of capital of just over 5%. This is expected to reverse in Q4 this year at the time of settlement. If we move to slide 26 and take a look through our change in working capital, which reversed from an outflow of $82 million last quarter to an inflow of $45 million in the second quarter. The inflow was largely driven by trade and other payables of $64 million due to increased payables across suppliers, minority dividends, royalties, and payroll-related liabilities, and an inflow of trade and other receivables of $29 million which reflect the inflow of VAT receivables in Senegal and the timing of gold sales proceeds. These inflows were partially offset by a drawdown on inventories of $31 million and prepaid expenses of $18 million that relate primarily to activities around our projects as they ramp up towards commercial production in Q3. As such, we would expect these outflows to start to unwind as we move through the second half of this year. Turning to slide 27, Our net debt was stable in Q2 as we approached the end of our investment phase. Operating activities from continuing operations generating the $250 million, as I've just explained. Investing activities were $171 million, comprised principally of approximately $22 million of sustaining capital, $52 million of non-sustaining capital, and $93 million of growth. Financing activities with an outflow of $150 million, which included a $70 million repayment of our RCF, minority dividend payments of $37 million, and payment of financing fees of $30 million. Shared buybacks were $8 million in the period, and payments of lease obligations of around $6 million, among some other items. The group incurred a loss of $5 million from the foreign exchange re-measurement of cash balances due to the increase in the US dollar to euro exchange rate during Q2. Looking forward, we remain focused on improving our net debt and seeking to de-level the balance sheet as quickly as we can. Lastly, if we move through to our net earnings from continuing operations on slide 26, we Overall, our adjusted net earnings were primarily impacted by higher taxes. I won't go through each of the line items, but just focus on a couple of the key numbers. Our current income tax expense increased to $135 million, largely due to an increase in recognized withholding tax expenses, which increased to $74 million as a result of the timing of local board approvals for cash upstreaming, in addition to an increase in tax expenses due to higher earnings, and the impact of the temporary contribution of 2% of profits before tax to the government of Burkina Faso that was introduced in Q1. The loss on financial instruments included realized losses on gold hedges of $8 million, unrealized FX losses of $7 million, and an unrealized loss on marketable securities of $4 million, along with unrealized losses on NSRs and deferred compensation related to asset sales of $2 million amongst some other items. The adjustments we've made include unrealized losses on financial instruments of $12 million, largely related to the unrealized loss on gold hedges, other expenses of $19 million, which included legal and other costs for the ongoing arbitration, a net loss from discontinued operations of $6 million in association with the settlement of historic liabilities under the sale agreement to the Bungu mine, and the loss on non-cash tax and other adjustments of $10 million that relate to the impact of FX3 measurements of deferred tax balances. With that, I'd like to hand over to Mark to take you through the details from an operational perspective.